All seems back to normal in Silicon Valley. Businesses are open and there is traffic back on Routes 237 and 101. “I had my first in-person meeting with a client in ages, and the traffic was horrible,” said Ray Wang, CEO of Silicon Valley-based Constellation Research. “People are starting to get back to work again.”
Can it be that simple? Is the Center of the Tech Universe back to being, well, the center again? Surely, it’ll take more than one traffic anecdote to tell.
However, Wang and others have insights on the changing dynamics in the Valley due to COVID-19 and what it will look like in a post-pandemic world. The consensus? Silicon Valley, ironically the home of tech disruption, will be met with a series of disruptive forces itself post-COVID-19. And it seems more than ever that the crown for America's best tech city is up for grabs.
“Silicon Valley is filled with disruptors in tech, but this is the first time the area has experienced this kind of disruption,” said Carter Busse, chief information officer at Workato, headquartered in Silicon Valley-based Mountain View. “At this point, it seems unlikely that it will abruptly return to what it was before. Today, companies need to be flexible to what works for their employees or those people will move on.”
Good Numbers, Bad Numbers for Valley
Indeed, U.S. workers are leaving companies at a pace not seen in 21 years — and it’s not just Silicon Valley. Nearly four million US workers quit jobs in April, according to the Bureau of Labor Statistics. This is the highest quit rate since 2000.
Remote work 15 months ago was a must for public health. Now, though, home kitchens and basements — and the flexibility that comes with remote work — are more appealing than swanky tech offices and long commutes for many employees. This is true even for those in Silicon Valley, which composes San Mateo and Santa Clara counties and includes 3.1 million-people who make an average annual salary of $152,185. Just ask some Apple employees, who spoke up against returning to Cupertino because of newfound advantages of working remotely full-time.
However, before we create the “how COVID-19 ended Silicon Valley" narrative, some numbers do suggest otherwise:
- Innovation is strong: The total number of patents registered in 2020 for Silicon Valley each of the last two years were higher than ever before, and 2020 ended with 24 new Silicon Valley publicly-traded companies, according to the 2021 Silicon Valley Index report by Joint Venture Silicon Valley.
- Trillion with a 'T': In aggregate, researchers found, Silicon Valley and San Francisco companies increased their market capitalization by 37%, reaching nearly $10.5 trillion by the end of 2020.
- Record year for funding: 2020 was a record year for venture capital ($46 billion), which fueled a record 67 mega deals in Silicon Valley and 41 in San Francisco. The region is also home to an elite-eight of 12 US Decacorns, private companies valued at more than $10 billion.
Still, California and Silicon Valley did not come of the pandemic unscathed.The state’s Employment Development Department reported in May California had regained 1.3 million jobs, or 48% of the 2.7 million it lost in March and April of 2020. Silicon Valley’s unemployment rate nudged slightly lower in April to 4.9%, though month-over-month declines are tapering off as the region slowly emerges from the pandemic crisis, according to the Joint Venture Silicon Valley’s Institute for Regional Studies report in May. As of mid-April, approximately 70,400 people in Silicon Valley’s labor force remained unemployed (20,500 in San Mateo County, and 49,900 in Santa Clara County). This compares to 42,900 pre-pandemic (March 2020, revised down from 48,000).
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Will People Come Back to Silicon Valley?
Sure, some numbers look great. Some don't. But how will Silicon Valley itself actually look with remote work in play? How does Silicon Valley do post-pandemic? Will Silicon Valley have the same appeal to actually work for a company there, and live there? Can the innovation continue, and will tech workers return to offices and campuses for a revival of in-person work?
It won’t necessarily be an easy sell for those who left during the pandemic to return. Price point's always an issue. A one-bedroom apartment in San Francisco goes for $4,526/month compared to $1,329/month in Austin, Texas, according to a 2021 report on US Tech Hubs by Built In.
“Living costs have always been a huge issue in Silicon Valley, and it continues to be,” Workato’s Busse said. “That is probably the most common reason people left, but there are many other factors that draw people away from the area: pace of life, family, lifestyle and more."
Historically, Busse added, what has drawn talent to Silicon Valley is economic opportunity. While the cost of living is high, the potential economic upside is also high. "What will draw people back to the Bay Area will be if they feel a few years down the road that the economic opportunities of living in Silicon Valley outweigh whatever benefits they gained by moving away," Busse said. "Regardless, it will be more incumbent upon employers to create environments that suit employees’ needs wherever they may be located."
San Jose Councilmember: They Won’t Come Back
Most Silicon Valley residents who left during the pandemic will not come back, according to Pierluigi Oliverio, three-time elected Councilmember for the City of San Jose who is currently the San Jose planning commissioner. “They enjoy a great quality of life in rural areas and low-housing costs. Some will come back since they pursue leadership positions. However, since most employees are not executive management, it is not necessary.”
According to Wang taxes play a role here too. Areas outside of Silicon Valley enjoy lower tax rates and oftentimes no income tax at all. Austin, Texas, a growing tech economy, has no income taxes, as well.
Most regions of California have seen the arrivals from Silicon Valley who are now working remote from their new home. In addition, they moved to places such as Bend, Ore., Boise, Idaho, and Bozeman, Mont., according to Oliverio.
“The ability to attract talent is still there, but now that people have gotten a taste of remote work and living elsewhere individuals will have more flexibility to not live near the office,” Oliverio said. “The pandemic has proven remote work is possible, and it will continue. Work will be permanently hybrid with SV building back up but not to the level it would have without the pandemic. This new reality means there will be no need for billions of dollars in tax increases for housing and transportation.”
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Whattaya Get for $2.5 Million?
Price points have always been a consideration for tech workers, even pre-COVID-19. And when you compare Silicon Valley homes to Austin, Reno, etc. where you can get double the space or more for more than half the price, it's easy to see why people are drawn to out-of-area locations, according to Brett Caviness, broker associate with Silicon Valley-based The Caviness Group at Compass and the president-elect of the Silicon Valley Association of Realtors.
“People want a nice home, and you really can't find anything that most would consider exceptional in terms of a home unless you are pushing $2.5 million-plus, and that's still just getting you maybe three bedrooms, and two bathrooms,” Caviness said. “Most of my clients really consider purchasing a home in the Bay Area a relatively short-term investment strategy. They park their money in a ‘house,’ really a piece of land they can live on for a number of years, until they can either upgrade to something they enjoy, or they can cash out and move back home somewhere else in the world, U.S., or just to a new city in the U.S.”
It's pretty shocking, Caviness added, when people start the process feeling confident and excited with a $2 million budget, only to find what they can get for the money in the areas they want to live is not at all as exciting as they hoped.
“Still there are endless reasons why people do choose to live, invest and thrive in Silicon Valley,” Caviness said. “We should not forget the incredible weather, economic opportunities, world class cities, nature, proximity to airports, sea, mountains, the list goes on and on. So when you get down to it, you really are buying a lifestyle in Silicon Valley that just doesn't center around the ‘home’ you get for the money, but more, the opportunity you acquire buy purchasing property in Silicon Valley.”
The Appeal Is Still There
But then there’s COVID-19, the first real moment when the working world said, “Yes, we actually can do this remote work thing.” How did the pandemic affect the Valley from a real-estate vantage point? COVID seemed to prove the Silicon Valley market is not only resilient but incredibly in demand, being in the mid-peninsula suburban markets, according to Caviness. Others agree with that contention.
People left cities like San Francisco early in the pandemic but came to other places in Silicon Valley places like Menlo Park, Redwood City and San Carlos to have more space, outdoor space and a central location for future commuting needs, he added.
“While I've had a few clients relocating out of state, most of my clients who have moved out of area were already at or near retirement age so they no longer had a need to be in the tech center of Silicon Valley and felt they were better off to cash out and move to a location with a lower cost of living,” Caviness said. “I've had a few younger clients either move, or consider moving, but the overwhelming number of active clients and past clients tell me that if you are in tech — while there are other newer tech upstart hubs like, Austin, Seattle, Denver/Boulder etc. — if you want access to the most opportunities for career movement and growth, you'd still want to be in Silicon Valley.”
Wang cited other American cities are laying claim as the home of tech in certain arenas: Miami for Cryptocurrency, Austin for consumer tech and Seattle for enterprise tech, for example.
“The appeal of Silicon Valley is the wealth and number of tech jobs, opportunity and growth,” Caviness said. “You can move out of the area and work from home in your current position, but you'll have a hard time getting a new job/role/moving to a new company remotely when compared to being local/in office people feel. If you want to grow in your career in tech, this is the place to be, my clients have explained. People like the opportunity of working remotely, but it seems they like the salary offered in Silicon Valley even more, which is often cut if you choose to work remotely and move out of the Bay Area.”
Pre-Pandemic Levels Likely Unattainable
Pre-COVID Silicon Valley was firing on all cylinders, from hardware to software. It is well documented that between universities and VC funding Silicon Valley remained the focal point for the world, according to Oliverio.
Now, 15 months later, where does Silicon Valley stand in terms of tech companies and being able to attract talent? How have things changed now having gone through a year-plus of the pandemic? Is the future of Silicon Valley remote, or will it build back to what it was before and still be considered America's tech hotspot?
“The ability to attract talent is still there but now that people have gotten a taste of remote work and living elsewhere individuals will have more flexibility to not live near the office,” Oliverio said. “The pandemic has proven remote work is possible and it will continue. Work will be permanently hybrid with SV building back up but not to the level it would have without the pandemic. This new reality means there will be no need for billions of dollars in tax increases for housing and transportation.”